BRUSSELS/LONDON (Reuters) - As the financial crisis hit a climax in Belgium with the split-up of its largest bank Fortis in October, new clients were rushing to a small, “ecologically correct” bank.
Triodos — investing not in derivatives but in tangible products such as wind turbines which the general public can understand and even applaud — was not the only alternative institution to benefit in Europe.
Around the world, the mainstream financial sector and its banks are facing flak for having crafted the mind-numbingly complex financial products that helped set off the worst financial crisis in 80 years.
Besides Triodos, Britain’s Ecology Building Society and the Co-operative Bank say they are net beneficiaries, with some analysts arguing they are building a more trustworthy franchise even though the returns they offer depositors are modest.
“The big banks speculate on money which, at the end of the day, I don’t know whether they have or not but it’s got nothing to do with reality,” said 58-year-old Michele Bellay.
Interviewed outside a Fortis branch in central Brussels, she said she would be willing to switch to an “ethical bank” rather than a High Street one: “It corresponds to the real economy, ... to what people live every day.”
An average of 60 new accounts a day were opened in the Belgian branch of Triodos in October — five times the usual figure, its managing director Oliver Marquet said.
The bank, with headquarters in the Netherlands and branches in Spain and Britain, says it invests only in green, social and cultural projects, such as wind turbines and medical centres.
“We started seeing something unusual in July ... it accelerated in September, and accelerated even further in October with the crisis at Fortis and Dexia,” said Marquet, of the increased business.
Credit rating agency Moody’s analyst Irakli Pipia said “ethical banks” were benefiting to an extent from a trend for people to spread their money around to benefit from capped state guarantees for deposits in each institution.
The ethically focused groups say they are transparent and invest in tangible projects, and that this explains an increase in deposits and clients at a time of financial turmoil.
“We invest in the real economy — ecological buildings, wind turbines, cultural projects. We don’t invest ... (in) purely virtual products,” Marquet said.
“Transparency is absolutely key and explains why we hold on well in crisis,” he said.
Paul Ellis, Chief Executive of the Ecology Building Society said that communicating with clients was key: “Ourselves, Co-Operative and Triodos, we make a point of telling people what we do with their money,” he said in an interview.
Fortis was carved up by Benelux authorities in October after a cash injection failed to calm investor nerves. Dexia also received state help.
The Belgian branch of Triodos, which now has some 28,000 clients, does not borrow on the inter-bank lending market.
It saw a 10 percent increase in the value of deposits in the first half of the year and a further 10 percent in July and August, to reach about a 30 percent boost by end-October, Marquet said.
In Britain, the Ecology Building Society had inflows of 2.4-2.5 million pounds in October — a drop in the ocean compared with the usual inflows of a High Street bank but double its April inflow, which the society said was already a record.
“The overall net inflow for 2008 has already exceeded inflow for the whole of 2007. In fact we are currently seeing a year-on-year growth of over 65 percent,” Jack Taylor, a marketing executive at the firm, told Reuters.
The society, which says it assesses the environmental impact of any project before agreeing finance, is one of the smallest building societies in Britain with group assets of 75 million pounds.
Britain’s Co-operative Bank — whose Web site details its stance on ethics, climate change and human rights — said retail savings had grown by 11 per cent and term savings (for one to three years) by 0.4 billion pounds or 87 per cent over the first six months of this year.
“Investors won’t ignore climate change when going through a financial crisis,” added Stephen Hine of International Relations at Ethical Investment Research Service (EIRIS), which researches companies’ social, environmental and ethical performance.
Returns from these institutions may not be attractive in purely financial terms.
For example, Triodos Belgium offers a 2 percent interest rate for a savings account, plus a premium of 2 percent for new cash which stays in the account for six months, and 0.5 percent for money which has stayed on the account for 11 months.
That compares with Fortis’s rate of 4.25 percent plus 1 percent premium for money deposited in the last three months of 2008, and is of course much lower than the return that some high-risk financial products can offer.
Both rates lag inflation. In Belgium, that peaked at 5.9 percent in July with the European Commission forecasting earlier this month the overall rate would be 4.7 percent for the country in 2008.
Despite this, some experts say clients seemed to be more loyal to ethical banks.
“There is a growing recognition that you do have to dig a bit deeper, you don’t just chase the higher rates, you need to look at what are you actually doing with your money,” the Ecology Building Society’s Ellis said.
Michael Lafferty, from Lafferty Group, which advises retail banking and personal financial services industry, said he believed the crisis showed a deeper problem of lack of trust in banks, rather than an interest in ethical banks.
“The big concern to people is: Can they trust their bank? That’s the ultimate ethical issue, I’ve been testing people .... not one of them would trust their bank at the moment,” he said.
“It will merge with something more serious which is the severe damage that has occurred to trust in banking in general ... out of all of that eventually in some 6-12 months will come ideas about how people expect banks to behave in the future.”
Writing by Ingrid Melander; Additional reporting by Elaine Codogno; Editing by Mark John, Charles Dick and Sara Ledwith